Study suggests a renaissance in the Rust Belt

February 06, 1991|By Sylvia Nasar | Sylvia Nasar,New York Times News Service

In the last recession, America's aging industrial heartland was widely considered to be incapable of saving itself.

But a government report issued Monday suggests that the Rust Belt has staged a renaissance on the factory floor. Thanks to a wrenching contraction in payrolls and plants, productivity -- the measure of output per hours worked -- climbed to a record level in 1990.

What is more, factories making everything from chemicals to cars now account for a robust 23.3 percent of the nation's gross national product, or the total cost of goods and services sold.

That figure is up from 20 percent in 1982, the post-World War II low, and matches the level of output achieved in the 1960s when American factories hummed at a feverish clip.

The new data put U.S. manufacturers on a par with those of Japan and Western Europe.

"I am not surprised at what we found," said Robert Lawrence an economist at the Brookings Institution. "Fears of de-industrialization were overblown."

The government's report was undertaken in response to a long simmering debate among some of the nation's leading economists about the extent of the recovery for America's manufacturers.

As the Reagan administration heralded the recovery in the last half of the 1980s, some Democratic economists insisted that the government's methods for measuring output yielded inflated results and misleading statistics about worker productivity.

Monday's report, the work of the Commerce Department, showed that manufacturing shrank more in the early 1980s than had been estimated at the time but roared back to a level that matched the previous peak, reached in 1966.

A related report by the Bureau of Labor Statistics showed that manufacturing productivity grew at a 3.6 percent rate during the almost three times as fast as in the 1970s.

The implications of both reports are that the nation's industrial base is better able to weather this recession and participate fully in a rebound.

Additionally, some analysts suggested that manufacturing no longer needed to be sheltered with costly subsidies or import protection. Indeed, one of the most striking occurrences in the last half of the 1980s was that the United States share of exports by industrial countries rebounded. That share is now larger than it was in 1980, the previous peak year.

The change is crucial because most economists agree that the best measure of competitiveness is how well a country's products perform in world markets.

It also suggests that the dollar does not have to fall a great deal more for imports to decline and exports to rise and correct the chronic trade deficit.

The report also reflects a growing consensus among many economists that the long-term problem in the nation's economy is not dilapidated, inefficient factories but productivity growth among the white-collar service sector.

Eight out of 10 U.S. workers are employed outside manufacturing, where stagnant productivity growth has lowered overall output.

White-collar productivity has averaged gains of less than 1 percent a year in this decade.

Between 1979 and 1989, industrial production rose by more than a third, but the factory work force shrank.

There are 19 million manufacturing workers now, vs. 21 million in 1979 before the two back-to-back recessions of the early 1980s.

The stable output share and shrinking employment share reflect the fact that U.S. factories staged an almost unbelievable productivity revival.

U.S. industrial productivity, which was dragging along at 1.4 percent of the gross national product in the 1970s, or about a third of the pace at which U.S. trading partners were recording gains in hourly worker efficiencies, is now growing at 3.6 percent a year, just as fast as the average of United States trading partners.

Michael Boskin, chairman of the President's Council of Economic Advisers, said: "With advances in productivity, flexibility of our market economy and proper economic policies, our economy will come out of recession with sustained growth in the 90s. On balance, manufacturing will do well."